Arjent Weekly Comment - w/e 17/02/2012
Inflated Promises
Markets this week - Global equity markets have had a volatile week, balancing caution over a second Greek bailout against continued positive macro data out of the US. That said, European equity markets struggled to hold on to recent gains, while Asian and North American exchanges continued the upward trend. With persistent ambiguity over Greece, the Euro hit a three-week low against the US Dollar earlier this week. Meanwhile, in the sovereign debt markets, investors' unease provided support to benchmark bond prices whilst, in the periphery, Spanish 10-year yields rose some 40-basis points. In commodities, supply concerns pushed Brent Crude to a 6-month high above $120 a barrel.
In Focus
In the UK this week, inflation was the main talking point. As expected, January CPI fell to 3.6% from 4.2% as last year's VAT increase fell out of the annual figures and energy prices remained broadly steady. As commented in previous Weekly publications, inflation is expected to weaken further towards the BoE's 2% target, which could well provide 'real' wage growth for consumers and potentially generate a stimulus to economic growth.
Meanwhile, Moody's indicated that the UK (along with France and other European nations) had been put on 'downgrade watch' citing increased uncertainty regarding the pace of fiscal consolidation and materially weaker growth prospects for some years to come. The consequences of this could lead to the UK losing its 'safe haven status', a possibility if economic growth deteriorates further and/or a suffocation effect arises from the Eurozone falling into recession.
In the Eurozone, Greece has once again dominated the headlines. After the passing of further austerity measures by parliament towards the start of the week, it appeared a formality that a further €130bn bail-out would follow. However, European leaders are in disagreement about fighting to save Greece given the nation's persistent lacklustre attempts to get its finances in order. As a result, approval of the further funds needed by Greece to avoid default (as well as €100bn write downs on private debt) is likely to take place on Monday next week at a meeting of EU finance leaders. Given the persistent turmoil in the region, we have adjusted our Neutral stance to a more bearish Neutral/Underweight positioning.
In the US, the Greece issue was put to one side as the S&P 500 index moved up to a nine-month high on the back of a continuation in positive macro data. Jobless claims fell to the lowest level since 2008, while manufacturing in the Philadelphia region increased in February at the fastest pace in four months. For our mind, the positive trend in macro data (against a backdrop of European woes), continues to support our positive stance on the US which remains our preferred developed economy.
If you would like any further information about our macro views or investment ideas, please speak to your Investment Manager.
Key global economics in the week ahead
A low-key week ahead for economic data. The meeting of EU finance ministers on Monday could be a critical day for Greece and the wider Eurozone as officials attempt to approve the release of bailout funds. Also next week, we are due Eurozone Consumer Confidence numbers on Tuesday and BoE minutes on Wednesday. Thursday's German Ifo figures could have the potential to create a market reaction along with US Jobless Claims data. Finally, on Friday, look out for February's Markit Composite PMI and US Michigan Sentiment numbers.
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